budget 2014 slide pack

UK BUDGET 2014 Issued 27th

March 2014

Richard Ramsey

Chief Economist Northern Ireland

[email protected]

Most economic indicators are set to improve for next year’s General Election

2012 2013 2014 2015 2016 2017 2018Output at constant market pricesGross domestic product (GDP) 0.3 1.8 2.7 2.3 2.6 2.6 2.5GDP levels (2012=100) 100.0 101.8 104.5 107.0 109.7 112.6 115.4Output gap ‐2.8 ‐2.2 ‐1.4 ‐1.1 ‐0.7 ‐0.3 0.0Expenditure components of GDP Household consumption 1.5 2.3 2.1 1.8 2.5 2.7 2.4General government consumption 1.6 0.9 1.2 ‐0.5 ‐1.2 ‐1.8 ‐0.9Business investment 3.9 ‐1.2 8.0 9.2 8.1 8.7 7.7General government investment 0.6 ‐6.4 10.7 1.0 2.2 0.8 ‐0.5

Net trade1 ‐0.7 0.1 ‐0.2 0.1 0.0 0.0 ‐0.1InflationCPI 2.8 2.6 1.9 2.0 2.0 2.0 2.0Labour marketEmployment (mil l ions) 29.5 29.9 30.4 30.6 30.9 31.2 31.4Average earnings 2.0 1.5 2.5 3.2 3.6 3.7 3.8LFS unemployment (% rate) 7.9 7.6 6.8 6.5 6.1 5.7 5.4Claimant count (mill ions) 1.59 1.42 1.20 1.13 1.06 0.98 0.94

Source: OBR March 2014

Economic forecast overviewPercentage change on a year earlier, unless otherwise statedOutturn Forecast

UK GDP Outturn / Forecasts

0

0.5

1

1.5

2

2.5

3

3.5

4

2012 2013 2014 2015 2016 2017 2018

% Y/Y

Budget March 2013 Budget March 2014Source:OBR

+1.2pp

+0.9pp-0.1pp -0.2pp

‘..the economy is continuing to recover – & recovering faster than forecast’. 2014 forecast

is ‘the biggest upward revision to growth between Budgets for at least 30 years’.

The UK economy will return to its pre‐recession size in Q2/Q3. But Q4 2016 on a GDP per capita basis

Real GDP LevelsIndexed to Q1 2008 = 100

80

85

90

95

100

105

110

2006Q2 2007Q4 2009Q2 2010Q4 2012Q2 2013Q4 2015Q2 2016Q4

Inde

x Q

1 20

08 =

100

Real GDP Real GDP per capita

Source: OBR March 2014Forecast

Q2/Q3 2014

UK employment is 5% above pre‐recession peak. But employment per capita is still 2% below Q1 2008 levels

UK Employment LevelsIndexed to Q1 2008 = 100

90

92

94

96

98

100

102

104

106

2006Q2 2007Q4 2009Q2 2010Q4 2012Q2 2013Q4 2015Q2 2016Q4

Inde

x Q

1 20

08 =

100

Employment Employment per capita


Q3 2012

Forecasts

UK household debt to income ratios recovering too and will be back to early‐mid 2007 levels within 5 years

UK Household Gross Debt to Income Ratio

Q1 2008169.9 Q1 2019

165.7

120

130

140

150

160

170

180

2005Q1 2007Q1 2009Q1 2011Q1 2013Q1 2015Q1 2017Q1 2019Q1

%

Source: ONS & OBR Forecast March 2014Forecast

‘Before we came to office the deficit was 11%. This year it will

be 6.6% ‐ down a third. Next year 5.5% down a half’. In 2018/19, no deficit at all.

Public Sector Net Borrowing (the 'underlying' deficit*) as % of GDP

-4

-2

0

2

4

6

8

10

12

1964-65 1973-74 1982-83 1991-92 2000-01 2009-10 2018-19

PSNB

Forecasts

Source: ONS, OBR March 2014, * Excludes Royal Mail pension transfer & APF transfers

EU SGP Deficit Ceiling

Government Net Borrowing as a % of GDP2014

0

1

2

3

4

5

6

7

German

yEsto

niaLu

xembo

urgLa

tvia

Denmark

Sweden

Bulgari

aAus

triaRom

ania

Greece

Lithu

aniaFinl

and

Italy

Euro ar

eaBelg

iumMalt

aEU

Czech

Rep.

Hungary

Netherl

ands

Slovakia

Slovenia

France

Portug

alIre

land

Poland UK

Cyprus

Spain

% of GDP

€

EU Stability & Growth Pact Annual Deficit Ceiling

Source: European Commission Winter Forecast February 2014 & OBR March 2014.

‘But it is still one of the highest [deficits] in the world’. Within the EU, only Spain & Cyprus have higher deficits in 2014

UK Public Sector Net Debt

0

250

500

750

1000

1250

1500

1750

2000

2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18

£Bn

Source: ONS, OBR March 2014

One Trillion Pounds of Debt

1.5 Trillion Pounds of Debt

Until the deficit is eliminated and a surplus is achieved, the overall stock of national debt will keep rising.

The overall debt to national income ratio won’t begin to fall until 2016/17

Public Sector Net Borrowing & Public Sector Net Debt as % of GDP

-4

-2

0

2

4

6

8

10

12

1964-65 1973-74 1982-83 1991-92 2000-01 2009-10 2018-19

PSNB

0

15

30

45

60

75

90PSNDPSNB Left Hand Scale PSND Right Hand Scale

ForecastsSource: ONS, OBR March 2014

Both the UK and Republic of Ireland will remain above the EU’s Stability & Growth Pact ceiling for quite some time yet

UK General Government Gross Debt as a % of GDPusing Maastricht Treaty definition

0

20

40

60

80

100

120

140

1976-77 1983-84 1990-91 1997-98 2004-05 2011-12 2018-19

% of GDP

Budget 2014 (March) EU Stability & Growth Pact Debt Ceiling Republic of Ireland*

Source: ONS, OBR March 2014, * refers to calendar years, DoF & EC Winter Forecast Feb-14

Gross General Government Debt as a % of GDP2014

0

20

40

60

80

100

120

140

160

180

200

Estonia

Bulgari

aLu

xembo

urgLa

tvia

Roman

iaDen

markSwed

enLit

huania

Czech

Rep.

Poland

Slovakia

Finlan

dMalt

aAus

triaNeth

erland

sSlove

niaGerm

any

Hungary EU UK

Euro ar

eaFranc

eSpa

inBelg

iumIre

land

Cyprus

Portug

alIta

lyGree

ce

% of GDP

Source:European Commission Winter Forecast February 2014 & OBR March 2014. Uses the Maastricht Treaty definition

€EU Stability & Growth Pact Debt Ceiling

The UK’s overall debt to national income ratio is not quite as high as the Eurozone using the Maastricht Treaty debt definition

The amount of planned borrowing between 2012/13 and 2017/18 is now £99bn less than it was a year ago

UK Public Sector Net Borrowing (PSNB)Excluding Royal Mail & Asset Purchase Facility Transfers

-6bn -12bn-12bn

-22bn

-21bn

-26bn

-20

0

20

40

60

80

100

120

140

160

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

£bnMarch 2013 Forecast March 2014 Forecast

Source:OBR

£99bn less borrowing forecast between 2012/13 & 2017/18 relative to Budget 2013. These savings equate

to the entire Education budget for 2014/15.

£5bn Surplus

Outturn

UK Public Sector Net Borrowing (PSNB)

-200

20406080

100120140160

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

£bn

Source:OBR Budget 2014

£572bn in 7 years to 2017/18 or 20 times the annual output of the

NI economy or running the UK NHS (£140bn p.a.) for 4 years

£5bn Surplus

Yes the amount of borrowing is falling. But some £572bn is still planned to be borrowed in the 7 years to 2017/18.

This is £230bn of *additional*

borrowing required relative to the forecasts made at the “Emergency Budget”

June 2010.

UK Public Sector Net Borrowing (PSNB)

+1bn +26bn+48bn

+59bn

+24bn

+55bn

5bn

+17bn

-30

0

30

60

90

120

150

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

£bn June 2010 Forecast March 2014 Forecast

Source:OBR

£230bn extra borrowing required relative to June 2010 forecast required over 7 years (up to 2017/18) this would also most fund the

NHS & Education for 1 year

Surplus

The amount of borrowing may be falling but with interest rates rising debt interest payments are set to rise by 55% in next 5 years

UK Central Government Debt Interest Payments

30

40

50

60

70

80

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

£bn

Source: OBR Forecast March 2014

Outturn

Forecasts

UK spends more on debt interest payments than on Transport, Law & Order or Defence. Borrowing equivalent to Education spend

UK Borrowing, Revenue & Expenditure in 2014/15*

53

95.5

0 50 100 150 200 250

Council Tax

Business Rates

Corporation Tax

Excise Duties

National Insurance

VAT

Income Tax

Borrowing (PSNB)

Transport

Housing & Environment

Public Order & Safety

Defence

Debt Interest

Education

Health

Social Protection

£bn

Source: OBR Forecast March 2014, *Not all revenue & expenditure categories are included

Spending

Revenue

OBR UK House Price Forecast

-4

-2

0

2

4

6

8

10

12

2010Q1 2011Q3 2013Q1 2014Q3 2016Q1 2017Q3 2019Q1

% Y/Y

March 2014 forecast December 2013 forecast


The OBR forecasts UK house prices to rise by almost 1/3rd between 2013 and 2018. Boosting revenues linked to property

House price growth & freeze on stamp duty thresholds expected to see a trebling in residential SDLT revenue between 2012/13 – 2018/19

UK Stamp Duty Land Tax Receipts

7.1

14.9

4.9

3.2

2.0

2.4

02468

101214161820

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

£BnResidential Property Commercial Property


Outturn

Forecasts

Proportion of UK deaths resulting in Inheritance Tax Tax (IHT) liabilities

0

2

4

6

8

10

12

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

%

Source:OBR Budget 2014

House price growth plus a freeze on the inheritance tax threshold (£325k) until 2017/18 doubles

the number exposed to IHT liability

Total public expenditure, or Total Managed Expenditure (TME) is still edging higher in nominal (before inflation)

terms

UK Total Managed Expenditure (nominal)

0

100

200

300

400

500

600

700

800

900

2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 2014-15 2016-17 2018-19

£Bn


Total public expenditure (TME) as a % of GDP is set to fall for 9 successive years (2009/10 – 18/19) & back below revenue

UK Revenue & Expenditure as a % of GDP

34

36

38

40

42

44

46

48

50

1968-69 1978-79 1988-89 1998-99 2008-09 2018-19

% of GDPTotal Managed Expenditure Public Sector Current Receipts


The fall in public expenditure is due to falling Departmental spending or DEL

Total Managed Expenditure (DEL* & AME**)as a % of GDP

15

20

25

30

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

% of GDP

DEL AME

Source: OBR March 2014*DEL = Departmental Expenditure Limits. DEL covers Departmental spending, staff & running costs etc**AME = Annually Managed Expenditure. AME covers spending outside departments' control (e.g. welfare spending, pensions, unemployment benefits etc)

AME starts to exceed DEL for the 1st time

UK Government Consumption**Excludes spending on Transfer Payments (e.g. Social Security, unemployment benefits etc)

-1

0

1

2

3

4

5

6

1992 - 2010 2010 - 2013 2013 - 2018

Ave

rage

Ann

ual %

Gro

wth

Nominal Growth Real Growth


Government consumption (largely DEL expenditure)

will not be the driver it was in recent years and decades…

…in fact it is set to account for its lowest share of national income since 1948

Government Consumption on Goods & Services as a % of Nominal GDP

14

16

18

20

22

24

1948

Q119

53Q1

1958

Q119

63Q1

1968

Q119

73Q1

1978

Q119

83Q1

1988

Q119

93Q1

1998

Q120

03Q1

2008

Q120

13Q1

2018

Q1

%


Forecast

UK Public Services Spending*Annual % change in real terms

-8-6-4-202468

101214

1948-49 1958-59 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19

Source: IFS March 2014, *refers to public expenditure less spending on welfare benefits & debt interest

8 years of cuts (-16.5%) in 9 years

We are here

The UK faces 8 years of public services spending cuts (in real terms)

in 9 years

UK Public Services Spending in real terms*

1997-98

2009-10

0

100

200

300

400

500

600

1948-49 1958-59 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19

£bn

Source: IFS March 2014, *refers to public expenditure less spending on welfare benefits & debt interest. Measure is wider than DEL as includes public service pensions, transfers to the EU and locally-financed expenditure.

+76%

‐17%

UK public services spending rose by 76% in 12 years from 1997/98 and is set to fall by 17% in 9 years to 2018/19

Cuts in Resource DEL in 2016/17 & 2017/18 (5% p.a.) will be twice the rate that occurred on average between 2011/12 to 2015/16

Change in Departmental DEL Spending in Real Terms

-6%-5%-4%-3%-2%-1%0%1%2%3%4%

Annual Average 2011/12 to 2015/16

2016/17 2017/18 2018/19

%

DEL Resource DEL Capital DEL


There are more cuts ahead than we have had to date

Cumulative Cuts in Departmental Spending

0

5

10

15

20

25

2010/11 to 2013/14 2014/15 to 2018/19 2010/11 to 2018/19

%

Source: IFS March 2014

Slide 30

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budget 2014 slide pack

Economy & Finance